Buffett, Dimon say quarterly profit forecasts harming economy

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Berkshire Hathaway CEO Warren Buffett and JPMorgan CEO Jamie Dimon cowrote an op-ed article published Wednesday by The Wall Street Journal.

Companies often hold back spending on technology, hiring, and research and development to meet quarterly earnings guidance that may be affected by factors outside the company's control, the business leaders wrote.

The pressure to meet short-term estimates has contributed to a fall in the number of USA public companies, wrote Buffett, the chairman of Berkshire Hathaway, and Dimon, who is also the chairman of top executives' lobbying group Business Roundtable, in a Wall Street Journal article on Wednesday.


Many CEOs who take part in the common practice of providing Wall Street estimates of how much money their companies will make often feel "pressure" to meet those quarterly forecasts. JPMorgan Chase reported lower fourth-quarter earnings January 12, 2018 on weak trading revenues and one-time costs from United States tax reform, partly offset by gains from higher interest rates.Net income for the quarter ending December 31 was $4.2 billion, down 37 percent from the year-ago period.

The two executives said on CNBC Thursday that companies that focus on hitting their quarterly numbers may do things that hurt them in the future, such as delaying investments or changing when certain gains are recorded. "Public guidance was the fix for many companies".

When the actual earnings results are officially reported, so-called beats - or profit results that top expectations - are often rewarded with a rise in the stock price.


Those in favor of guidance say it improves communications with Wall Street, reduces share price volatility and boosts a stock's value. The two business gurus said quarterly financial guidance encourages short-term thinking that stifles growth and limits innovation in the economy.

Several big companies like AT&T, Coca Cola, Facebook and UPS have stopped issuing quarterly earnings guidance.

Dimon said that Schultz "would be a great chief executive or governor or senator or mayor or whatever he wants to do", but added that he's not sure that managing a business makes a person suitable for politics.


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